Maybe you have a plan for who will take over your business when you’re ready to retire or maybe you can’t imagine a day without your boots in the dirt. Either way, it’s never too early to understand the options available when you’re ready to transition to the next phase of your business or the next phase of your life. The rental industry boasts a legacy of good people building good businesses, creating significant value for owners when they exit their business or partner with outside investors.
As you think about the options available, there are generally two potential pathways you could take — selling to a strategic buyer or finding outside investors. Strategic buyers are business operators seeking add-on acquisitions to grow their business and achieve their strategic priorities. The goal for strategic buyers is to build on the acquired company’s performance and find ways to enhance profitability or accelerate growth. Alternatively, investors seek out businesses with meaningful growth potential backed by management teams that will continue to lead the business. Investors want to partner with the management team and support the business with additional capital. They look to fund the areas of the business that will drive growth and ultimately achieve a return on their overall investment.
Strategic buyers. There are typically four key objectives that the larger rental companies seek to address as part of their mergers and acquisition (M&A) program. How your business aligns with these strategic objectives for potential buyers will likely drive who will get engaged in the process and the overall demand for your business. The four objectives are people, customers, real estate and equipment.
- People. In an environment where skilled rental professionals are highly sought after, acquiring a business can help address recruiting challenges by bringing in talented and experienced rental personnel.
- Customers. For the larger equipment rental companies, growth via M&A provides instant access to a network work of customers that they can build on from day one. Benefits for the buyer would include expanding share of wallet with existing customers they already serve or onboarding new customers.
- Real Estate. Greenfield operations, or opening a brand-new location, can take up to three years of permitting before opening operations. Acquisitions allow for a major player to open turnkey operations in new and desired locations.
- Equipment. While supply chain challenges ebb and flow, acquiring a rental business allows the buyer to grow their fleet overnight. This could serve to expand the existing fleet of equipment or add complementary or specialty equipment.
The strategic priorities of the major players evolve over time and the weighting of these four objectives varies. Staying plugged into the strategic landscape as you think about your timing for an exit is recommended and could even help you chart your growth strategy.
Outside Investors. These include private investors, family offices or private equity firms. Regardless of their structure, financial sponsors share the same objective of investing in businesses that will drive favorable returns for their stakeholders. The criteria financial sponsors use to evaluate potential investments vary from firm to firm. Typically, financial sponsors are looking for businesses that will have continuity of leadership after their investment, meaning they will want the owner and key leaders to stay on board and continue owning the business. Historically, strategic buyers have had a competitive advantage in the acquisition process across the general rental spaces over financial sponsors. However, recently financial sponsors have been engaged in acquisition processes for high-growth or specialty rental businesses.
Becoming familiar with the buyer universe and how they think about investing in businesses can help you in the long run understand who may be interested in your business and when the right time might be to explore a transaction. In the short term, it also can help you think about how to optimize your business to best position you for your long-term goals and greatest value.
The original article is on the Rental Management hosted by the American Rental Association.
